VACANCIES in the private residential market are set to inch up over the next few years as a supply glut looms, and this would exert further downward pressure on rents and, hence, investment returns.
ANZ Bank flagged in a report on Friday that Singapore's population growth is not enough to absorb the new housing supply between 2014 and 2017, with record completions of new homes posing a "supply shock".
Daniel Wilson, economist for ASEAN and Pacific at ANZ Bank, said that he expects non-landed property rents to fall cumulatively by up to 10 per cent by the end of next year, given the time lag between changes in vacancies and rents.
Rising interest rates pose a second headwind, he added, warning that a potential 100-basis point hike in interest rates next year could trigger a sharper fall in rents.
Vacancy rates in the first three quarters of this year have already outpaced the bank's expectations.
Data from the Urban Redevelopment Authority (URA) showed that private residential rents sank by a deeper 0.8 per cent in the third quarter, after a 0.6 per cent decline in the preceding quarter; the data showed overall private home prices slipped 0.7 per cent in the third quarter.
The vacancy rate of private homes rose to 7.1 per cent in the second and third quarters, the first since 2006 that it has exceeded 7 per cent, with the vacancy rate for non-landed private homes already exceeding 8 per cent in the second and third quarters.
Mr Wilson said that a vacancy rate of 7.5-8.5 per cent is deemed the tipping point at which "intensified downward pressure on property rents manifests itself". But the overall vacancy rate for private homes could rise to a higher 8.5-9.0 per cent over the next two years, he projected. "Though the supply pipeline is well-anticipated, its impact has not been tested," he said.
About 80,000 units are in the supply pipeline - including units under construction and planned development - way above the long-term average of about 60,000 units. Some 80 per cent of these units are already under construction and many will be hitting the market over the next few years, according to Mr Wilson.
URA's third quarter statistics showed that some 20,852 private condos and executive condos will be completed in 2014, significantly higher than the 13,150 units completed in 2013. Another 23,769 units are expected to be completed next year.
ANZ expects new completions of private condos to peak in 2016, nearly 2.5 times the long-term average.
Even by assuming that the population size of Singapore will grow to 5.9 million in 2020 with slightly over 80 per cent of the households staying in HDB flats and the rest staying in private homes, the population growth is not sufficient to absorb the new supply, he warned.
Meanwhile, the economist expects any decline in property prices to be more muted relative to the decline in rents, as developers are easing prices modestly to move inventory rather than undertake any fire sale.
If the 80th percentile of the median resident household income is used as a proxy (since 80 per cent of the resident population live in HDB flats), "prices have not grown too fast", Mr Wilson argued.
This article was first published on Dec 6, 2014.
Monday, Dec 08, 2014
The Business Times
Source: AsiaOne (08 Dec 2014)